"I would argue that the most serious threat to the United States is not someone hiding in a cave in Afghanistan or Pakistan but our own fiscal irresponsibility." David Walker, Former Comptroller General of the United States of America

28 April 2006

Who is to Blame for High Gas Prices?

A while back I was in Paris, France. Next to the restaurant we were eating at I saw a drunken homeless guy passed out. Amazingly enough he managed to hold up his hand in the hope of getting some money. Unbeknownst to him, his cheap wine was spilling from his bottle onto the ground. That is how I equate our addiction with oil. We are vastly ignorant of the world around us, but we complain and demand that something be done about high gasoline prices while we willingly fill the tanks of our cars and trucks.

How about some perspective? No one complains when they pay $7.50 a gallon for bottled water or Coca Cola or Mountain Dew at the gas station (take a 0.5 liter bottle for $1 and do the math – 1 gallon is approximately 3.785 liters). By the same token, a 0.5 liter bottle of $3 a gallon gasoline is about $0.40. There is significantly less processing and handling with water when compared to gasoline.

No one was complaining when oil was less than $15 a barrel (a barrel is 42 gallons by the way) and gasoline was less than $1 a gallon and oil companies were losing money and laying people off. No one was complaining when gasoline hit $2 a gallon. Now with gasoline breaking the $3 a gallon barrier again this year people are clamoring for “help” and our politicians are more than ready to oblige with ridiculous legislation in order to garner our support in the upcoming election cycle. The latest Senate bill includes an increase in refining capacity and development of known oil reserves in ANWR and in the Gulf of Mexico which is important in reducing gasoline prices and our dependence on foreign oil over the long-term. However, words cannot begin to describe the exasperation that I have with the following portions of this bill:

A gas tax holiday rebate for consumers of $100;

Suspension of deposits into the Strategic Petroleum Reserve for six months to make more oil available for consumer use; and

Consumer Anti-Price Gouging Protection

The $100 rebate check is the most irresponsible idea to come out of Washington D.C. in recent times. This is a meaningless gesture by our government representatives to garner favor in an election year. First, the $100 will not solve the problem. It only puts a small band aid on a larger, gaping wound. Second, we have record deficits and are borrowing more than $1 billion a day. Now you want to spend even more money that the federal government does not have. Third, it will do nothing to lower gas prices.

How exactly will this work? Do both my wife and I get $100 because we both drive? Do we get $300 because we have daughter? What is the cost of producing the checks and sending them out? How much more of a burden will this have on the federal deficit? I personally do not feel comfortable with borrowing $100 from my daughter and future grand children to satisfy the reelection goals of career politicians.

Suspending oil deposits into the Strategic Petroleum Reserve will have NO affect on gas prices and is also very shortsighted. Without increased oil refining capacity the extra oil will have NO impact on gas prices. Instead, the legislation should have included measures to unify the formulations of gasoline so that these refineries do not have to make a certain blend for a certain part of the country.

I am no apologist for the oil companies; however, they are making money because we consume a large volume of gasoline and diesel. Exxon-Mobil sold 89 billion gallons of gasoline last quarter. Higher consumption means more sales which translate into more profits. The profit margin per gallon of gas is roughly $0.09 per gallon. State and federal taxes per gallon average $0.459 per gallon (The federal government gets $0.184 per gallon). Who is gouging who? I would posit that they are making money through volume and not through price fixing. Will you suggest price controls? We saw how well that worked in the 1970’s.

Doesn’t the federal government already tax the oil companies’ profits? What exactly would be gained by taxing them more? Where was the government when oil companies were losing money and jobs because of the low price of oil and gasoline? The people to blame for their obscene profits are you and me because we do not reduce our consumption. We belly up to the gasoline trough on a daily basis.

Oil prices will continue to go up as China and India begin to surpass our consumption rates. That is a fact. Will the federal government continue to have inquiries and hand out checks because the law of supply and demand increases gasoline prices? The days of $1 or even $2 a gallon gasoline are long gone. The days of $3 and $4 a gallon gasoline are here. Deal with it. Use it as an opportunity to see that America has an oil addiction. Use this opportunity to look forward and invest in new technology that will make America the leader in alternative fuels and energy. We can sit around and mope and institute worthless stop gap measures, or we can heed the early warning and create and prosper by a different path. Change is upon us and unless you realize it and act upon it America will become nothing more than an addict wandering around mumbling about how it needs more oil.

If you want to do something about high gasoline prices sell your SUV, buy a diesel (my diesel VW Jetta wagon gets on average 45 mpg) or hybrid automobile, car pool, bicycle, walk, or use the bus. Stop bitching about it, because we are all part of the problem. And if you drive a large SUV like an Excursion, Yukon, or Hummer I do not want to hear your woes. You made your bed now sleep in it.

Photo by KCThinker. Street sign on side road in the Black Forest, Germany.

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